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Sunday, March 14, 2010

Global oil demand will rise more quickly than expected in 2010 but the slow pace of economic recovery could continue to cloud the outlook, the Organization of the Petroleum Exporting Countries (OPEC) said. In its monthly oil report, OPEC said that world demand will rise by 900,000 barrels per day (bpd) in 2010 or 1.1% to average 85.2 million bpd, up 100,000 bpd from its February projection. OPEC also pointed to a further rise in production from its members in defiance of agreed output limits. Oil demand has been highly dependent on the world economy, supported by government-led stimulus plans, OPEC said. "These stimulus plans have already done a great job of jump-starting many sectors of the economy, including energy," the cartel said. However, questions remain as to how long governments will be able to afford supporting their economies, it added. "Should this support diminish, then world oil demand would of course be impacted," OPEC said.

Shares of Texmo Pipes surged over 50% on the listing day against the issue price of Rs90. It closed the week at Rs143. The initial public offer (IPO) of Texmo Pipes & Products closed on 19 February, with an oversubscription of 7.48 times.

Texmo manufactures PVC and HDPE pipes. The company will use the proceeds for the expansion of its product range. Texmo’s debut performance was the third best this year after ARSS Infrastructure Ltd and Jubilant Food Works Ltd.

Shares of Man Infraconstruction listed at almost 38% premium to the issue price of Rs252. It ended the week at Rs334. The company’s initial public offer was subscribed 62.33 times. Man Infra provides construction services for building ports and roads, besides undertaking residential, industrial and commercial projects.

IL&FS Transportation Networks' initial public offering (IPO) was subscribed 1.86 times, while that of Pradip Overseas was subscribed 2.27 times, as per data available on the NSE website.

Fortis Healthcare Ltd. announced that its wholly owned subsidiary has entered into a definitive agreement to acquire 23.9% strategic stake in Singapore's Parkway Holdings Ltd. from TPG Capital (formerly Texas Pacific Group) for Rs31.19bn (US$686mn). The deal values Parkway shares at S$3.56 each, higher than its Thursday's closing price of S$3.12. Fortis is India’s second-largest healthcare provider after Apollo Hospitals and Parkway is Asia’s biggest hospital operator by sales. The acquisition would form Asia’s largest hospital chain with over 10,000 beds across 64 hospitals in six countries. The deal will also see Fortis Chairman Malvinder Mohan Singh appointed chairman of the Parkway board. Fortis will replace TPG as Parkway’s single largest shareholder and intends to seek four seats on Parkway’s 11-member board. "The acquisition will significantly expand our footprint across the region and place us strategically for geographical and clinical leadership in Asia, a big step closer to our vision of establishing a global healthcare delivery network," Malvinder Mohan Singh said. Parkway runs 16 facilities and has 3,400 beds across six countries including Malaysia, Singapore, UAE, China and Bangladesh. A listed entity on the Singapore Stock Exchange, it has a market capitalisation of US$2.4bn.

The Government introduced a bill to amend the State Bank of India Act in parliament and is seeking approval to allow SBI to sell preference shares and reduce its holding in the bank to 51%. The bill’s statement of objects and reasons said that the legislation was aimed at allowing "reduction of shareholding of the Central Government from 55% to 51% consisting of the equity shares of the issued capital." The SBI Act, 1955 was amended in 1993 to enable the bank to access capital market. While SBI can access capital market by issuing equity shares or bonds, or by both equity shares and bonds, there is no express provision under the SBI Act to enable the bank to issue preference shares and also bonus shares, it added.

"The amendment bill seeks to provide for enhancement of the capital of SBI by issue of preference shares, to enable it to raise resources from the market by public issue or preferential allotment or private placement," the Bill said. "The bill also aims to provide for flexibility in the management of the bank," it added. The Bill will provide for increasing the authorised capital of SBI to Rs50bn and enable the Central Government to increase or reduce the authorised capital in consultation with the Reserve Bank of India (RBI). The passage of the bill will give SBI the headroom to raise more equity capital. At the current price, this would mean a mobilisation of Rs200bn. SBI will need to raise nearly Rs400bn over the next five years to maintain growth momentum, according to chairman OP Bhatt.

The National Stock Exchange of India (NSE), and CME Group, the world’s leading and most diverse derivatives marketplace, announced cross-listing arrangements, including license agreements covering benchmark indexes for US and Indian equities. The parties also entered into a MoU with respect to other areas of potential co-operation, including related to development and distribution of financial products and services. Under the cross-listing arrangements, the S&P CNX Nifty Index will be made available to Chicago Mercantile Exchange (CME), for the creation and listing of US dollar denominated futures contracts for trading on CME, and the rights to the S&P 500 and Dow Jones Industrial Average (DJIA) will also be made available to NSE for the creation and (subject to regulatory approval) listing of Rupee-denominated futures contracts for trading on NSE. The license to the Nifty 50 from NSE’s affiliate India Index Services & Products Ltd. (IISL), which is exclusive to CME Group within the Americas and Europe, is in addition to the existing licensing arrangement between Singapore Exchange Ltd. (SGX) and IISL.

The Government has partially relaxed norms for mills to sell non-levy sugar quota for March in the open market. It has given them seven more days to sell the allocated quantity, the Ministry of Consumer Affairs, Food and Public Distribution said in an order dated March 10. The validity period for each week in March is extended by seven days so that mills can sell quota for week ending March 31 by April 7, the Ministry said. The Government had earlier asked sugar mills to sell a part of their monthly non-levy quota every week, failing which the unsold quantity will be converted into levy sugar and sold at subsidised rate through the public distribution system (PDS).

Separately, the Indian Sugar Mills Association (ISMA) said that India is expected to produce 16.8 million tonnes of sugar in the current season that ends in September, raising its output forecast by 5%. Yields in the top sugar producing states, Maharashtra and Uttar Pradesh, have improved, president Vivek Saraogi said. Several sugar mills have started winding up operations as they have crushed all available cane and many others are likely to shut down by end-March, he added.

Improved supply and higher output figures for 2010-11 have pressured retail prices of sugar over the last month to Rs35-40 per kg range, down from a high of around Rs50 a kg at the end of December and early this year. Sugar was selling at Rs31.75 per kg. This was slightly higher over March 8 when it was selling at Rs30 per kg. This is because the Maharashtra State Cooperative Sugar Factories Federation issued an appeal to sugar mills, asking them not to sell sugar below Rs32 per kg at ex-mill rates.

New bank loans grew by 15.8% YoY in the fortnight ended Feb. 26, according to the latest data from the Reserve Bank of India (RBI). At 11.5%, Year-to-Date (FY10) loan growth improved sequentially by 130 bps over the past fortnight. Banks disbursed Rs376bn worth of new loans in the second half of February and these numbers could only improve over the next two fortnights. "We expect full-year loan growth to be around 15%, driven mainly by consumer and infrastructure loans," IIFL said in a note to its clients. Cumulatively, banks have disbursed Rs3,193bn of loans since March 2009. Of the total loan growth, over 38% of loans (Rs1,201bn) have been disbursed during December-February, 2010 period. The Reserve Bank of India (RBI), in its third quarter monetary policy, had scaled down the credit growth target to 16% YoY from 8% YoY earlier, implying cumulatively disbursement of Rs4.4tn during the current fiscal year. Deposits grew by 16.8% YoY in the fortnight ended Feb. 26. Deposit growth regained momentum in the fortnight under review, with banks adding Rs636bn worth of deposits, as opposed to only Rs45bn in the previous fortnight. Incremental LDR further improved to 67.1% against 38% in October 2009.

The yield on India's 10-year benchmark government bond crossed 8% for the first time since October 2008 amid concerns that a spiraling inflation would force the Reserve Bank of India (RBI) to raise interest rates in April. At the end of the week, the yield on 6.35% paper expiring in 2020 stood at 7.99% while the price of the underlying security stood at Rs88.96. On March 5, the yield on the benchmark G-sec note closed at 7.97%. The Union Budget for 2010-11, which was presented to the parliament on February 26, set the tone for bond yields. The Budget is seen as inflationary with a rise in Government spending and excise duties. Fuel prices rose after the Budget, leading to expectations that inflation will touch double digits in a few weeks. The Finance Minister also unveiled a Rs457,000 crore gross borrowing programme in the fiscal year 2010-11. The Government has indicated that the borrowing will be front-loaded with 70% of the borrowing being completed in the April-September period. Separately, media reports suggest that the market is shifting to the 7.02% 2016 bond as a substitute. Trading volume in this bond has moved higher than the volume in the 6.35% 2020 bond. The spread between the 6.35% 2020 bond and the 7.02% 2016 bond has widened.

Food prices declined slightly in the week ended Feb. 27, giving some relief to consumers, data released by the Government showed. But fuel prices climbed in the last week of February, maintaining pressure on the Reserve Bank of India (RBI) to raise interest rates to check spiraling prices. Annual inflation for the Food Articles group stood at 17.81% in the week ended Feb. 27, marginally lower than an annual rise of 17.87% in the previous week, the Commerce Ministry said today. The index for 'Food Articles' group rose by 0.2% to 285.7. The recent decision by the Government-owned oil marketing companies (OMCs) to hike prices of petrol and diesel also stoked inflation. Inflation for the Fuel & Power group rose to 11.38% in the week under review, from an annual rise of 9.59% in the previous week. The index for this major group rose by 1.6% to 361.2. Annual inflation in the Fuel & Power group was at (-)4.9% during the corresponding week of the previous year.

The WPI for the week ended Feb. 27 in respect of ‘Primary Articles' group rose by 0.4% to 284.7 from 283.7 for the previous week. Annual rate of inflation for this group stood at 15.08% for the week ended Feb. 27 compared to 15% in the previous week. It was at 5.55% during the corresponding week of the previous year. Annual inflation for the Non-food Articles group came in at 13.60% versus 13.77% in the week ended Feb. 20 while inflation for the Minerals group stood at (-)9.60% as against (-)12.38% in the preceding week. Inflation for the Mineral Oils group was at 16.43% for the week ended Feb. 27 versus 13.32% in the week ended Feb. 20. Inflation for the Coal Mining group remained static at 13.46%.

The key stock indices appear to be in a limbo after some sparks of gains which coincided with the budget. The struggle could well spill over to next week unless the Q4 advance tax numbers turn out to be spectacular. A global market rally will of course be a boost; if it happens.

Having said that, we have seen in recent days that emerging markets like that of India and China have under-performed vis-a-vis the advanced markets. While the Sensex and Nifty continue to be sluggish, stuck in a tight rangebound trade, the Nasdaq and S&P 500 have touched 18-month highs. Global stocks have been pushing higher since early February, helped by improving sentiment around Greece's debt woes and hopes for a gradual economic recovery.

Sentiment could take a hit temporarily if the Chinese authorities take further action following a spate of bullish economic reports. The Bank of Japan could ease monetary policy next week to preempt the yen’s appreciation. Back home, some concerns have been building up on stubbornly high inflation and its adverse impact on interest rates though no major move is expected from the RBI till the annual policy meeting next month. Before that, quarterly earnings will have some say in determining market's near-term direction. Till then, the market may remain subdued and choppy. The Nifty is unlikely to break out of the current range of 5100-5150. Any upside will meet resistance at 5180-5200. On the way down, support is seen at 5100 initially.

After two bad attempts at French auction, the Government decided to dump the method of discovering price for the follow-on public offering (FPO) of state-run miner NMDC. It decided to employ the old practice of book-building for the NMDC issue. Still, that was not enough as the FPO got off to a dismal start on day one. The issue received bids for only 17% of its size on day one. Things improved slightly on day two, when the overall subscription rose to 79%. The Government's misery was somewhat curbed by public sector insurance giant LIC, which is believed to have picked up a big chunk of the FPO. It got fully subscribed only in the mid-afternoon on Friday. Valuation was said to be the biggest concern that kept potential investors at bay. This was the third straight Government that received poor response from the market. Going forward, the Government will have to take a long and hard look while pricing the future FPOs that it may have lined up as part of its disinvestment programme.

India's industrial production expanded at a strong pace in January 2010, thanks largely to a low base effect, data released by the government showed. However, growth in industrial output slowed slightly from the previous month, stoking some worries about future prospects, especially once the fiscal stimulus is withdrawn and interest rates starts to rise. It may be recalled that in January 2009 industrial activity was still reeling under the aftereffects of the global financial crisis.

India's industrial output, as measured by the Index of Industrial Production (IIP), stood at 16.7% in January 2010 as against 1% in the same month a year earlier, the Commerce & Industry Ministry said. The figure was mostly in line with consensus estimates. It remained near the highest reading since April 1995, when the series, which uses 1993-94 as base year, started. Industrial production growth for December was revised up, to 17.6% from a preliminary estimate of 16.8%.

Manufacturing, with an almost 80% weightage in the IIP, stood at 17.9% in January 2010 compared to a 1% in the same month in 2009. The Electricity sub-segment grew by 5.6% in the month under review versus 1.8% in January 2009. Mining output grew by 14.6% in the first month of 2010 as against 0.7% growth achieved in January 2009.

Consumer Durables output expanded by 31.6% in January 2010 compared to 2% in the same month of 2009. Production of Consumer Non-durables shrank by 3.1% as opposed to a growth of 4% in January 2009. Consumer Goods recorded a growth of 4.2% versus 3.6% in January 2009.

Output in the Capital Goods space grew by a whopping 56.2% in January 2010 compared to 15.9% for the same month of 2009. The growth rate in Basic Goods category stood at 10.7% as against a contraction of 0.7% in the year-ago period. Output in Intermediate Goods segments rose by 21.3% in the month under review versus a drop of 7.2% in January 2009.

Between April and January, industrial growth expanded 9.6% compared to 3.3% in the same period last year, the Commerce Ministry said.